Law:

Section:

Section 41(2) of the Income-tax, Act 1961 (Corresponding to section 10(2)(vii) of the Indian Income-tax Act, 1922) - Balancing charge - Assessment year 1957-58 - Assessee-firm carried on transport business which was reconstituted from time to time but two partners continued throughout - Permit was in name of one of these two partners and assets of that business also vested in them - ITO assessed to tax profits on sale of buses under section 10(2)(vii) of 1922 Act - Assessee's case was that firms reconstituted from time to time were distinct and separate and were formed after dissolution of earlier firms - It was thus contended that benefit of depreciation in past was not obtained by assessee-firm and, consequently, if sale proceeds of buses exceeded their book value, same could be taxed as capital gains but firm could not be taxed under section 10(2)(vii) of 1922 Act - Whether a mere change in constitution of partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity - Held, yes - Whether, in instance case, since there was in fact no dissolution of earlier firms which continued to exist all along, there was only change in constitution of firm - Held, yes - Whether, therefore, profit arising on sale of buses was assessable in hands of assessee-firm under section 10(2)(vii) of 1922 Act - Held, yes FACTS The assessee, was a registered partnership firm doing the business of transporting passengers. It was formed under a deed of partnership dated the 8-10-1949 for a period of three years. It was to continue thereafter at the will of the parties. It consisted of four partners, including T and H (brothers). Permit was in the name of 'T' and moreover goodwill and name of business were also the absolute property of 'T'. On the 29-7-1952, a fresh deed of partnership was executed between T, H and two other partners. Clause 2 of the preamble of this deed recited that the partnership of the 8-10-1949, had come to an end by efflux of time. On the 14-5-1955, a third deed of partnership was executed under which the firm consisted of two partners only, namely 'T' and 'H'. It was recited in this deed that the second partnership…

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